Coronavirus job retention scheme: what employers should do

Pinsent Masons

The UK government last week announced the creation of a package designed to help employers retain staff during the coronavirus pandemic, even if they are forced to temporarily shut their businesses.

Chancellor of the exchequer Rishi Sunak said the ‘Coronavirus Job Retention Scheme’ would help pay wages and preserve jobs. Employers will be able to contact HMRC for a grant to cover most of the wages of their workforce who remain on payroll but are temporarily not working during the coronavirus outbreak. Any employer in the country is eligible for the scheme.

UK workers for any employer within the scheme will keep their job and the government will pay up to 80% of their wages, up to a total of £2,500 per month, backdated to 1 March. The scheme will initially operate for three months with a possible extension, and is a government grant rather than a loan.

Many questions remain outstanding over what is covered by the scheme. It is unclear what will count as wage costs, and whether the cost of benefits in kind, pension contributions, commissions, bonuses, overtime payments and other premiums are covered.

It is also not yet clear whether the apprenticeship levy or employers’ national insurance contributions are covered, and how pay will be calculated for employees on zero-hours contracts or variable hours.

Who is eligible?

The scheme will apply to people who have been designated by their employers as "furloughed employees", and who have been notified of this by their employer. "Furloughed" means still employed but not doing any work at all, with the government’s employee guide stating: "To qualify for this scheme, you should not undertake work for them while you are furloughed".

It therefore appears that people who have had their hours reduced but who are still working will not be eligible.

The scheme does not apply to self-employed people or contractors, but the position of agency workers is unclear. It is also unclear if it will apply to ‘workers’ as well as employees, and the position of people who were made redundant since 1 March is also uncertain.

Questions are also outstanding about the status of people who are sick or self-isolating, and whether employers can designate them as furloughed enable them to receive more than statutory sick pay, or to cover the cost of company sick pay.

What are the employment law risks?

In these circumstances, it is important not to overstate the legal risks. The practical risk of claims must be much-reduced given the wider issues people are facing and the financial cushion provided by the scheme.

In particular, if employers agree to top up to full pay, the risks ought to be negligible. Nevertheless, employers need to at least be aware of the potential claims they may face.

The announcement made clear that the scheme must be implemented in accordance with employment law. There will be no statutory right to designate an individual as "furloughed".

Where there is a contractual lay-off clause, employers are in a strong position to benefit from the scheme. They will just need to check the precise rules on how someone is designated as "furloughed" once they are published. They must also use objective criteria for deciding who should be furloughed.

Where there is no contractual lay-off clause, technically employers will still need an individual's consent to being furloughed. Without that consent, an individual could claim breach of contract or unlawful deduction from wages to recover the lost income if the employer does not top up to full pay; constructive dismissal; and potentially a protective award for failure to consult in the run-up to dismissal.

Given that the scheme potentially only has 10 weeks left to run, imposing the change through dismissal and re-engagement is unlikely to be an attractive option save for people with very short service. It would also attract negative PR.

Therefore, employers should consider how they could obtain consent to reduce the legal risks. The most obvious route is to run a voluntary scheme and perhaps to offer some form of top up to the scheme payment. Where employers have collective bargaining, they should talk to the union first before launching the scheme.

With people increasingly nervous about leaving home, and many now facing childcare difficulties, voluntary schemes should be successful. If anything, the issue may be that they are over-subscribed.

Employers should ensure they have objective reasons for selecting who is furloughed and who is not. If the scheme permits them to alternate furloughed status between individuals, they should give serious consideration to doing that. In theory an employer could face breach of trust and confidence or discrimination claims from people who are not furloughed but who want to be, or from those that are and who miss out on pay (because the employer is not topping-up). An objective selection process should provide a strong defence to such claims.

If an individual will not consent to being furloughed, it is likely to be better for the employer just to impose it anyway. That way, they can claim the 80%.

If employers still want to implement redundancies, care should be taken to consider whether the option to furlough is a reasonable alternative to dismissal, in order to reduce the risk of unfair dismissal claims.

What should employers do now?

Employers should consider whether they can afford to put any cost reduction plans on a temporary hold, as the details of the scheme should be published imminently. If they can, start to plan who could be furloughed.  If they cannot, particularly as the scheme will only be backdated for those who were furloughed at the relevant time, employers should take advice so that they can do this in such a way as to maximise their chances of being able to claim the grant whilst minimising legal risks.

If furloughing will mean selecting some people in the same role to come to work and some to stay at home, employers should consider how they might select who falls into each group. 

Employers should also consider how they would implement furlough if there is no contractual term permitting it.  Whilst the practical legal risk is slim, it still exists and when all of this is over they will still want an engaged workforce who feel that they have been fairly treated.

They must also consider whether they will top up the 20% of pay not covered by the government, or salaries in excess of £37,500, as well as the impact on pension contributions and salary-related benefits.

The government is setting up an online portal to enable employers to notify the details of furloughed workers, but it appears that the first payments will not be made until mid-April.  Employers will need to fund the costs in the meantime. They may be able to access a Coronavirus Business Interruption Loan to assist with this.

Jon Fisher
Pinsent Masons

*This blog was originally published on 23 March 2020, on Pinsent Masons' website here.